International technology transfer is the process by which a technology, expertise, know how or facilities developed by one business organization (MNC in the case of international business) is transferred to another business organization. There are many issues associated with the international technology transfer. The most important international technology transfer issues are; ways of technology acquisition, choice of technology, terms of technology transfer, and creating local capability.
Modes of Foreign Technology Acquisition
One of the major issues in technology transfer relates to the mode of acquisition. Developing new technology may conjure up visions of scientists and product developers working in R&D laboratories. In reality, new technology comes from many different sources, including suppliers, manufactures, users, other industries, universities, government, and MNCs . While every source needs to be explored, each firm has specific sources for most of the new technologies. For example, because of the limited size of most farming operations, innovations in farming mainly come from manufacturers, suppliers, and government agencies. In many industries, however, the primary sources of new technologies are the organizations that use the technology. Broadly the acquisition routes are three:
- Internal Technology Acquisition: This is result of technology development efforts that are initiated and controlled by the firm itself. Internal acquisition requires the existence of a technology capability in the company. This capability could vary from one expert who understands the technology application well enough to manage a project conducted by an outside research and development (R&D) group to full blown R&D department. Internal technology acquisition options have the advantages that any innovation becomes the exclusive property of the firm.
- External Acquisition: External technology acquisition is the process of acquiring developed by others for use in the company. External technology acquisition generally has the advantage of reduced cost and time implement and lower and risks. However, technology available from outside sources was generally developed for different applications.
- Combined Sources: Many of technology acquisition are combinations of external and internet activities. Combined acquisition seek to limitations and external sources, taking advantages of both the actions at the same time.
Making Decision on Technology Transfers
The technology manager must weigh the advantages and limitations of each specific route of technology acquisition and then make a decision about its choice.
- Seizing Tacit Knowledge: Taking advantage of knowledge available in- house is least expensive and has no risks. It will not leave when the knowledgeable person leaves the firm. Every firm will have employees who are knowledgeable and it is up to the company to identify and make use of the know-how.
- Internal R&D: Technology acquisition via internal R&D consists of having a research and development group within the firm. The group is responsible for creating the technology that the firm uses. This source of technology acquisition enables the firm to become stronger, has the advantage to exclusivity, and may entail tax or other government incentives. Long time required, high cost and risk of failure are the demerits of this internal route of technology acquisition.
- Internal R&D with Networking: Internal R&D networking has all the same advantages and disadvantages discussed under internal R&D. The main difference is the fact that the R&D staff make a fairly concerted effort to keep abreast of the state of development of the technologies affecting their products. They network with technology creators at conferences and trade shows.
- Reverse Engineering: Reverse Engineering is the determining of the technology embedded in a product through rigorous study of its attributes. It entails the acquisition of a product that the firm believes would be an asset, disassembling it, and subjecting its components to a series of tests and engineering analysis to ascertain how it works and studying the engineering design criteria used in the product’s creations.
- Reverse Brain Drain: This involves attracting expatriate entrepreneurs and experts who have gained adequate experience abroad to set up or develop enterprises in their countries of origin. Taiwan and China are known for this type of technology transfer.
- Covert Acquisition with Internal R&D: It entails finding out the technology developments being conducted by a competitor that are not open to the public. Most businesses do this to some extent by questioning suppliers about components being sold to the competitors or by socializing with the competitor’s employees. The less scrupulous firms even become involved in industrial espionage using cameras, binoculars, and break-and-enter techniques to learn about the happening inside the competitor’s plant.
- Covert Acquisition: This without internal R&D, guarantees that the product will be a copy (generally a poor one) of the competitor’s product. The firm can introduce it at a lower price because there are no development costs to recover. However, with the exception of the price, the product will have no other competitive advantage.
- Technology Transfer and Absorption: This route is similar to internal R&D with networking. The difference is that there is much more effort put into searching for, learning about, and translating, no-cost technology to the firm’s applications. Internal technical ability is necessary to understand the technologies found and to develop them into solutions for the firm’s application.
- Contract R&D: Firms resort to contract R&D for more than one reason. This is the ideal option for those that lack the necessary facilities and expertise to conduct the required work but still want to maintain control over the development and own the results exclusively. It is also a good choice for those that need a specialized set of equipment or expertise for occasional short term projects. This avoids the investment in these facilities and the on-going commitment to staff that would be underutilized. It allows short-term access to world class personnel and facilities for specialized projects that would otherwise be completely beyond the company’s means. The advantages of this route are no investment in facilities, and low investment in staff. The disadvantages are: no hands-on-knowledge in house and difficulty in keeping information confidential.
- R&D Strategic Partnership: R&D strategic partnerships are almost the same as contracting R&D. They generally consist of a group of companies with a common need that collectively contract a research institution to conduct the work for them. This allows the firms to share the risk and costs. It also creates a situation where they can learn from each other as well as from the experts conducting the research. The advantages of this route of technology acquisition are : shared risks, reduced cost, and possibility of learning from others. Need to share knowledge with others and the necessity of adopting research results to own application are the drawbacks of this route.
- Licensing: Another route of technology acquisition is licensing. Its major benefit is a significant reduction in time to market relative to other forms of technology acquisition that require development. It also enables the acquiring firm to share the financials risks of acquiring the technology with the provider because the bulk of the payments are generally in the form of royalty-a percentage of sales of product made using the new technology.
- Purchasing: A common and effective external technology acquisition method is purchasing. This is normally done in the form of buying a piece of production machinery with embedded technology. This is the quickest form of technology transfer because the technology is already packaged and is ready for use. It is low risk because the equipment has been proven to be technically competent and there are already users to evidence the machine’s capability.
- Joint Venture: Entering into a joint venture agreement with a technology provider is another form of external acquisition that can be very effective. Typically, this is a partnership between two firms, one with a technology and another with market access. It can take the form of the creation of a new firm with each of the partners owning shares in the new firm in proportion to the value of their contribution to the new firm. In this case production facilities are installed in the new firm with the partners bringing technology and market know how along with capital investment into the new firm. The distribution and marketing of the product may use the system that the firm with market access has in place, or that firm’s know-how may be used to create a dedicated system for the new firm. The advantages are the technology can be implemented immediately, as it is already proven. Risk involved is less and there are possibilities of learning from the provider of technology. The disadvantages are market risks are high and there are no chances of developing technical strengths.
- Acquisition of a Technology Rich Firm: The final form of external technology acquisition is the acquisition of a firm that has the know how which the acquiring firm desires. This can happen when one firm has a technological innovation that is impacting another company’s innovation the second company negotiates to purchase the entire company. This can result from a defensive action or it can be deliberate strategy to acquire technology. The outright purchase has advantages and disadvantages. On the positive side are: short time to market, low risk, and probability of buying good image. The problems are the possibility of acquiring negative baggage and merger problems.
Choice of Technology
The second major issue relating to technology transfer is its choice. It is argued that it is the industrialized countries that develop technology, and the know-how thus developed will be mainly useful to them. This means that the rich countries become monopolists in developing, using and managing technology. This also means that the technologies tend to be designed for the production of high quality sophisticated goods on a large scale, using as much as possible capital and higher-level professional skills in place of sheer labor, and replacing natural resources by synthetics.
Terms and Conditions of Technology Transfer
The issue relating to terms and conditions of technology transfer and the question of the suitability of the transferred technology are related to each other. Some of the restrictive conditions, for example, make technology less suitable than it would otherwise be. This clearly applies to such restrictions as prohibitions on the adaptation of the imported technology, preventing the use of imported technology as a basis for local R&D development, and clauses stipulating that the results of local technological research and development based on the imported technology must be transferred to the owner or supplier of the technology.
Creating Local Capability
Creating local technological capability is essential to absorb imported technology. This stems from several reasons. Technology, it may be stated, is not simply a matter of blueprints, which can be transferred without any local effort, to any part of the world, Each time some technology is installed, some local adoption to required, which demands local technological capability. The greater the capacity, the more efficient the resulting operations. The need for local adaptation arises from the fact that the environment in which any technology operates is unique in any situation when it is installed and may even differ radically from the environment for which the know-how was developed in the first place. This is especially true when technology is transferred from MNCs to developing countries.
Barriers to International Technology Transfers
The final international technology issue relates to barriers. The problems encountered in transfer of technology are:
- A limited general understanding of the concept of technology, and the lack of a consistent framework for its study.
- Lack of systematic planning for technology transfer in developing countries or misunderstanding of its underlying philosophy.
- Lack of bilateral scientific/ technology advantages in the process of technology transfer (mutual benefits).
- Lack of systematic and integrated engineering and socio-economic approach to the technology transfer process.
- Lack of a relevant quantitative framework/approach to the analysis and evaluation of technology transfer to developing countries.
Credit: International Business Environment(MBA-IB)-AU